BEC Economics and Business Cycles 1 — Questions and Answers
Question 1: Which type of unemployment occurs when workers are between jobs or searching for better positions?
- Frictional unemployment (Correct answer)
- Structural unemployment
- Cyclical unemployment
- Seasonal unemployment
Correct answer: Frictional unemployment
Frictional unemployment refers to the short-term joblessness that occurs when workers are transitioning between jobs or entering the labor market for the first time.
Question 2: What does GDP measure?
- Total market value of all final goods and services produced within a country in a given period (Correct answer)
- Total exports minus imports of a country
- Total government spending plus private investment
- Total household income within a nation
Correct answer: Total market value of all final goods and services produced within a country in a given period
GDP (Gross Domestic Product) measures the total market value of all final goods and services produced within a country's borders during a specific time period.
Question 3: During a recessionary gap, actual GDP is:
- Below potential GDP (Correct answer)
- Equal to potential GDP
- Above potential GDP
- Negative in absolute terms
Correct answer: Below potential GDP
A recessionary gap exists when the economy's actual output falls short of its potential (full-employment) output, indicating underutilized resources.
Question 4: Which of the following is an example of an automatic stabilizer?
- Unemployment insurance benefits (Correct answer)
- A new infrastructure spending bill
- A tax rate reduction passed by Congress
- A Federal Reserve interest rate cut
Correct answer: Unemployment insurance benefits
Unemployment insurance is an automatic stabilizer because it automatically increases government spending during downturns without requiring new legislation.
Question 5: The Consumer Price Index (CPI) primarily measures:
- Changes in the price level of a basket of consumer goods and services (Correct answer)
- Changes in wholesale prices paid by businesses
- Changes in stock market valuations
- Changes in government spending levels
Correct answer: Changes in the price level of a basket of consumer goods and services
The CPI tracks changes in the price level of a fixed basket of goods and services typically purchased by urban consumers, serving as the primary inflation gauge.
Question 6: When the Federal Reserve increases the federal funds rate, the most likely immediate effect on the economy is:
- Decreased borrowing and reduced spending (Correct answer)
- Increased consumer spending and investment
- Higher inflation in the short run
- Increased bank lending
Correct answer: Decreased borrowing and reduced spending
Raising the federal funds rate makes borrowing more expensive, which reduces consumer and business spending, thereby slowing economic activity and curbing inflation.
BEC Economics and Business Cycles 1
Which type of unemployment occurs when workers are between jobs or searching for better positions?